It is argued that the Activity Based Costing approach produces more accurate product cost information. Critically evaluate the strengths and weaknesses of this statement.

Before the 1980s, majority of the companies were manufacturing units, producing a limited straddle of products, with corporal and outwit off labour macrocosm the paramount follow. Since explosive charge costs were low and schooling computing costs high, the companies were at ease using conventional product costing methods. The event of the 1980s, brought with it intensifier competition across the globe and growing immensity of overheads spot that of direct labour declined (Drury, C., pp 225). Also there were problems that were being set round with tralatitious cost systems. The use of traditional costing belong to a distortion of data as it allocated indirect manufacturing costs by using volume-related formulae. These formulae were actually base on direct labour or direct poppycock and the percentage contributed by these costs towards the product or expediency was a relatively small amount. The information thus provided by these systems was inaccurate and tr ey to incompetent decisions being taken on account of matters much(prenominal) as capital investment and product policy. The information would likewise misdirect the management in terms of the financial home of the company, this dealer to decline in profit (Macintosh, N.B.). thence the changing corporate environment and problems with the traditional costing systems brought about a need for an alternative cost system that was twain innovative and sophisticated.

This alternative as suggested by Cooper and Kaplan (1988) was use Based Costing ( alphabet) based on the following possibility (Harvard Business R eview (1988)): Virtually all of a compa! nys activities hold out to support the production and delivery of todays goods and services. They should therefore all be product costs. Further on they published a serial publication of articles that explained the key ideas that supported first principle type systems. These articles lead to an appreciable amount of popularity and implementation of ABC by a number of companies, so much so that a... If you want to get a full essay, order it on our website: OrderCustomPaper.com

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